U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _______________
COMMISSION FILE NUMBER 0-27721
EBIZ ENTERPRISES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Nevada 84-1075269
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
13715 Murphy Road, Suite D
Stafford, Texas 77477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 403-8500
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the issuer's common equity outstanding as of April 30,
2002 was 34,062,328 shares of common stock, par value $.001.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes [ ] No [X]
EBIZ ENTERPRISES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
PART I PAGE
FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements .......................................... 3
Consolidated Balance Sheets
March 31, 2002 (unaudited) and June 30, 2001 ................ 3
Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2002
(unaudited) and 2001 (unaudited) ............................ 4
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2002 (unaudited)
and 2001 (unaudited) ........................................ 5
Notes to the Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 10
Item 2. Changes in Securities and Use of Proceeds ..................... 10
Item 6. Exhibits and Reports on Form 8-K .............................. 10
SIGNATURES.............................................................. 12
EBIZ ENTERPRISES, INC.
Consolidated Balance Sheets
March 31, 2002 (Unaudited) and June 30, 2001
March 31, June 30,
2002 2001
------------ ------------
ASSETS (Unaudited)
Current Assets:
Cash $ 53,937 $ 557,894
Accounts receivable, net of allowance for doubtful accounts of $489,155
and $1,085,815 at March 31, 2002 and June 30, 2001, respectively 738,761 1,958,486
Inventory, net 85,219 999,365
Prepaid expenses and other current assets 229,990 179,543
------------ ------------
Total current assets 1,107,907 3,695,288
Property and Equipment, net 734,643 1,183,361
Deferred Loan Fees, net 37,808 52,443
Restricted cash (Note 2) -- 258,879
Goodwill, net 2,832,230 2,832,230
Other Assets 67,568 69,557
------------ ------------
$ 4,780,156 $ 8,091,758
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 2,014,509 $ 9,499,695
Accrued expenses 564,985 2,383,609
Notes payable -- 4,722,873
Related party notes payable 187,289 2,330,986
Convertible Debenture, net of discount -- 2,889,579
------------ ------------
Total current liabilities 2,766,783 21,826,742
Notes payable -- 486,812
Convertible Debenture, net of discount 597,214 --
Liabilities Subject to Compromise 18,492,329 --
------------ ------------
Total liabilities 21,856,326 22,313,554
Commitments and Contingencies -- --
Stockholders' Equity (Deficit):
Convertible preferred stock; $0.001 par value; 5,000,000 shares
authorized; 7,590 shares issued and outstanding at March 31, 2002
and June 30, 2001, respectively; liquidation value $100 per share
366,737 366,737
Common stock; $0.001 par value; 70,000,000 shares authorized;
34,062,328 shares issued and outstanding at March 31, 2002
and June 30, 2001, respectively 34,063 34,063
Additional paid-in capital 46,715,220 46,715,220
Accumulated deficit (64,192,190) (61,337,816)
------------ ------------
Total stockholders' equity (deficit) (17,076,170) (14,221,796)
------------ ------------
$ 4,780,156 $ 8,091,758
============ ============
The accompanying notes are an integral part of these
consolidated financial statements
EBIZ ENTERPRISES, INC.
Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2002 and 2001
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Net Revenue $ 2,535,978 $ 8,417,852 $ 6,200,710 $ 14,007,310
Cost of Sales 2,167,353 7,251,474 5,275,317 11,835,018
------------ ------------ ------------ ------------
Gross profit 368,625 1,166,378 925,393 2,172,292
Selling, General and Administrative Expenses 818,146 3,979,104 3,023,779 7,493,848
Depreciation and Amortization 113,357 2,440,848 466,471 4,209,050
Provisions (Recovery) for Doubtful Accounts (302,992) 58,946 (272,992) 176,439
Loss on sale of partnerAxis -- 3,542,584 -- 3,542,584
------------ ------------ ------------ ------------
Loss from Operations (259,886) (8,855,104) (2,291,865) (13,249,629)
Other Income (Expense):
Interest Expense (150,417) (1,152,159) (547,905) (4,355,987)
Interest & Other income 440 34,248 4,371 172,522
------------ ------------ ------------ ------------
Net loss (409,863) (9,973,015) (2,835,399) (17,433,094)
Dividends on preferred stock -- (18,975) (18,975) (56,925)
------------ ------------ ------------ ------------
Net Loss Attributable To Common Stockholders $ (409,863) $ (9,991,990) $ (2,854,374) $(17,490,019)
============ ============ ============ ============
Net Loss Per Common Share, Basic and Diluted $ (0.01) $ (0.30) $ (0.08) $ (0.83)
============ ============ ============ ============
Weighted Average Common Shares: Basic and Diluted 34,062,328 33,161,240 34,062,328 21,199,733
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
EBIZ ENTERPRISES, INC
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2002 and 2001
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
---------------------------
2002 2001
----------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,835,399) (17,433,094)
Adjustments to reconcile net loss to net cash used
in operating activities-
Depreciation and amortization 466,471 4,209,050
Loss on sale of partnerAxis -- 3,612,171
Stock exchanged for services -- 54,923
Warrants issued to debt holders -- 1,308,077
Interest costs of Beneficial Conversion Feature -- 1,679,202
Amortization of discount and loan fees 151,759 675,620
Accrued Interest added to principle balance 433,841 --
Accounts Payable converted to debt 630,168 --
Changes in assets and liabilities:
Accounts receivable 1,219,725 3,645
Inventory 914,146 (44,295)
Prepaid expenses and other assets (48,458) (328,606)
Accounts payable, post petition (63,466) (589,350)
Accrued expenses, post petition (108,559) (395,147)
----------- -----------
Net cash provided (used) in operating activities 760,228 (7,247,804)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: (net of effect of business acquisitions):
Cash from Business acquisition -- 128,355
Increase in other assets -- (11,171)
Purchase of furniture, fixtures, intellectual property and equipment,net (17,753) (704,958)
----------- -----------
Net cash used in investing activities (17,753) (587,774)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES: (net of effect of business acquisitions):
Net (repayments) borrowings under line of credit, pre petition (1,764,243) 995,776
Borrowings under secured convertible note, post petition 591,000 1,500,000
Repayments under Related parties notes payable, pre-petiton (23,585) --
Repayments under Related parties notes payable, post petition (293,937) --
Principal repayments of notes payable, pre-petition (14,546) (105,047)
Transfer from/(to) restricted cash (non-current), net 258,879 2,394,608
Sale of stock, net of expenses -- 3,000,000
----------- -----------
Net cash provided (used) by financing activities (1,246,432) 7,785,337
----------- -----------
Net increase (decrease) in cash (503,957) (50,241)
Cash, beginning of year 557,894 50,997
----------- -----------
Cash, end of year 53,937 756
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 23,556 $ 140,227
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND OPERATING ACTIVITIES:
Dividends accrued on preferred stock $ 18,975 $ 56,925
Beneficial Conversion Feature on Convertible Debenture $ -- $ 1,679,202
Issuance of warrants to Debenture holder $ -- $ 1,363,496
Conversion of debt and related interest to common stock $ -- $ 2,147,705
Accrued interest added to principle of Debt $ 570,965 $ --
Account Payable converted to debt $ 630,204 $ --
Issuance of common stock for business acquisition $ -- $22,372,546
Issuance of common stock for furniture, equipment and intangible assets $ -- $ 3,400,000
Issuance of options for cunsulting services $ -- $ 54,923
Issuance of stock for intangible assets $ -- $ 2,759,250
The accompanying notes are an integral part of these
consolidated financial statements.
EBIZ ENTERPRISES, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDING MARCH 31, 2002 AND 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles (GAAP) for complete financial
statements. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods presented have been made. The results for the three and
nine month periods ending March 31, 2002 may not necessarily be indicative of
the results for the entire fiscal year. These consolidated financial statements
should be read in conjunction with the Company's Form 10-KSB for the year ended
June 30, 2001.
LOSS PER SHARE
Basic loss per share of common stock was computed by dividing the net loss by
the weighted average number of shares outstanding of common stock.
Diluted earnings per share are computed based on the weighted average number of
shares of common stock and dilutive securities outstanding during the period.
Dilutive securities are options and warrants that are freely exercisable into
common stock at less than the prevailing market price. Dilutive securities are
not included in the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share.
LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consist of the following:
Accounts payable $ 7,421,720
Accrued expenses 1,729,040
Notes payable 1,576,218
Notes payable - related party 4,738,450
Convertible debentures 3,026,901
-----------
$18,492,329
===========
GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained significant
losses from operations and has a working capital deficit of approximately
$1,658,876 as of March 31, 2002.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts, or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence.
(2) RECENT DEVELOPMENTS
POST-PETITION CAPITAL RAISE . Through the efforts of our financial advisor,
First Financial Equity Corporation ("FFEC"), we completed the issuance of
secured debt instruments with a total principal balance of $591,000 in January
and February 2002 for which we received $523,809 of proceeds after expenses and
fees. To secure payment and our performance of our obligations, we granted a
security interest in our assets to the holders of the secured debt instruments
which mature on May 1, 2008. The proceeds from this capital raise have been used
for working capital support, making debt payments, recruiting key employees,
product development and product marketing. This additional capital provided some
temporary relief for our continuing cash flow demands. Even with this
post-petition financing transaction, we have a need for additional capital and
are continuing our efforts to locate and raise additional capital.
(3) SUBSEQUENT EVENTS
PLAN OF REORGANIZATION APPROVAL. On April 11, 2002 the bankruptcy court
confirmed our amended joint plan of reorganization (the "Plan") which we had
originally filed on January 4, 2002 along with our wholly-owned subsidiary,
Jones Business Systems, Inc. ("JBSI"). A summary of the principal provisions of
the Plan are as follows:
* The effective date of the Plan is thirty (30) days following the date
all orders necessary for confirmation of the Plan become final orders
(the "Effective Date"). The Effective Date is anticipated to be May
21, 2002. On the Effective Date, all of the assets and business
operations of JBSI will be transferred to the parent entity, EBIZ,
which shall become the reorganized, surviving entity ("New Company"),
and JBSI shall be dissolved and cease to exist. Thereafter, all
purchases, manufacturing, sales and other business operations will be
conducted as one company.
* Obligations to secured creditors are to be paid in full with interest.
Long-term periodic payments will be made to secured creditors until
full payment has been made.
* Upon the Effective Date, the general unsecured creditors will share
pro rata in a pool of securities consisting of (i) 660,000 shares of
common stock in New Company, par value $0.001 ("New Common Stock") and
(ii) warrants to purchase 220,000 shares of New Common Stock (each an
"Unsecured Creditors Warrant"). The terms of the Unsecured Creditors
Warrants will provide for a two-year exercise period from the
Effective Date and an exercise price of $0.65 per share. The total
amount of New Common Stock issued directly to the general unsecured
creditors and from exercise of the Unsecured Creditors Warrants
(assuming exercise of all Unsecured Creditors Warrants) equals
approximately 9.46% of the New Common Stock that may be issued under
the Plan. In addition, each general unsecured creditor will receive
equal quarterly payments over a two year period, beginning on the date
that is three months after the Effective Date, which aggregate 7% of
such general unsecured creditor's allowed claim.
* On the Effective Date, all outstanding shares of preferred stock and
common stock of the Company will be cancelled. Warrants to purchase
shares of New Common Stock at $0.65 per share will be issued to the
former stockholders (each a "New Warrant") at the rate of one share of
New Common Stock for every ten (10) shares of the Company's common
stock owned as of the Effective Date. Terms of the New Warrants will
provide for a sixty-day exercise period from the Effective Date. For
purposes of calculating the exchange for the New Warrants set forth
above, the 7,590 outstanding shares of preferred stock of the Company
have been converted into 3,220,000 shares of common stock of the
Company. The total number of shares of New Common Stock for which the
New Warrants may be exercised is 3,728,185. The total amount of New
Common Stock issued to preferred and common shareholders of the
Company from exercise of the New Warrants (assuming exercise of all
New Warrants) equals approximately 40.09% of the New Common Stock that
may be issued under the Plan.
* The Canopy Group, Inc. ("Canopy") has the right, for the period that
ends thirty days after the Effective Date, to exchange up to
$1,500,000 of its secured debt for shares of New Common Stock. The
total number of shares of New Common Stock for which Canopy may make
such exchange is 2,538,462. In addition, Canopy will receive on the
Effective Date warrants to purchase 253,846 shares of New Common Stock
(each a "Canopy/FFEC Warrant"). The terms of the Canopy/FFEC Warrants
will provide for a three-year exercise period from the Effective Date
and an exercise price of $0.65 per share. The total amount of New
Common Stock issued to Canopy from the exchange of its secured debt
and the exercise of the Canopy/FFEC Warrants (assuming Canopy
exchanges the entire amount of its secured debt and exercises all of
its Canopy/FFEC Warrants) equals approximately 30.02% of the New
Common Stock that may be issued under the Plan.
* During the period ending on the date that is thirty days after the
Effective Date, holders of the secured debt instruments totaling
$591,000 (each a "DIP Note"), issued through the efforts of our
financial advisor FFEC in the post-petition capital raise, may
exchange all or part of the debt represented by a DIP Note for (i)
shares of New Common Stock at the price of $0.50 per share or (ii) a
convertible secured promissory note (each a "New Note") which provides
for interest to accrue at various rates until the maturity date which
is seven years after the Effective Date. At maturity, all principal
and accrued interest will be due. For the period ending on the date
that is twenty-four months after the Effective Date, each holder of a
New Note may convert the amount of such New Note to shares of New
Common Stock at the conversion price of $0.50 per share. The total
number of shares of New Common Stock for which the DIP Notes may be
exchanged directly for shares or converted through the New Notes for
shares is 1,182,000 shares which equals approximately 12.71% of the
New Common Stock that may be issued under the Plan. In addition, the
agent for the holders of the DIP Notes, which also served as the
financial advisor to the Company in the debtor-in-possession financing
transaction, will receive 118,200 Canopy/FFEC Warrants which if
exercised equals approximately 1.27% of the New Common Stock that may
be issued under the Plan.
* The Transition Management Team will collectively receive 300,000
shares of New Common Stock and warrants to purchase 300,000 shares of
New Common Stock (each a "Transition Warrant"). The terms of the
Transition Warrants will provide for a one-year exercise period from
the Effective Date and an exercise price of $0.65 per share. Fifty
percent of the total number of shares of New Common Stock and
Transition Warrants will be distributed to members of the Transition
Management Team on the Effective Date with the balance distributed on
the date that is 90 days after the Effective Date. The total amount of
New Common Stock issued directly to the Transition Management Team and
from exercise of the New Warrants equals approximately 6.45% of the
New Common Stock that may be issued under the Plan.
* The board of directors of New Company on the Effective Date will
consist of Bruce Parsons, up to three designees of Canopy (depending
upon the amount of its secured debt that is exchanged for New Common
Stock), and up to one designee of FFEC (depending upon the amount of
the DIP Notes that are exchanged for New Common Stock ).
The Plan requires that certain administrative claims be paid on the
Effective Date.
The total outstanding shares of the Company as of the confirmation date of
the Plan was 7,590 preferred shares and 34,061,851 common shares. The
number of shares of New Common Stock to be issued upon the Effective Date
is 810,000, and the total number of shares of New Common Stock that may be
issued upon the exercise of all warrants, the conversion of all convertible
debt issued under the Plan, and the issuance to the Transition Management
Team of the balance of its New Common Stock is 8,490,693. The combined
total number of shares of New Common Stock that may be issued under the
Plan by all methods is 9,300,693.
On or near the Effective Date, New Company will adopt provisions of "fresh
start accounting," which requires New Company to restate all assets and
liabilities to their fair values based upon the provisions of the Plan and
certain valuation plans currently underway. No determination of the impact
of fresh start accounting on the historical consolidated financial
statements has been made.
ASSET BASED LINE OF CREDIT. In May, 2002, we secured an asset based line of
credit for $500,000 with Canopy (the "ABL"). The ABL is secured with our assets
and those of JBSI, and has a one year term. The liquidity that the ABL provides
will assist in our ability to source products and fill orders. Even with the
ABL, we have a need for additional capital and are continuing our efforts to
locate and raise additional capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events, our plans and expectations, financial projections and performance
and acceptance of our products and services in the marketplace. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed elsewhere in this Form 10-QSB or incorporated herein by reference. See
Special Note on Forward-Looking Statements below.
OVERVIEW
We entered into the quarter ended March 31, 2001 without a functioning revolving
line of credit, which limited our ability to source the product necessary to
fill the orders placed by our customers. Since August 2001, when Canopy assumed
Finova Capital Corporation's (FINOVA) first position lien by purchasing the
$2,000,000 balance of the term note and the approximately $350,000 balance of
the revolving line of credit (RLOC), we have had access to collected accounts
receivable, but this has been insufficient to meet our capital needs. The ABL
will provide some temporary relief for our capital needs (see the section
caption SUBSEQUENT EVENTS in the NOTES TO FINANCIAL STATEMENTS above for
additional discussion of the ABL).
Subsequent to our Chapter 11 filings made on September 7, 2001, we have made
considerable reductions in operating expenses, primarily in personnel. Although
these reductions will have significant impact on our future operations, it will
be necessary to raise additional capital, reestablish the relationships with
existing customers, generate new customers, and execute our confirmed plan of
reorganization. Our failure to successfully execute on our confirmed plan of
reorganization will greatly impact our business.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
Net revenues for the three months ended March 31, 2002 were $ 2,535,978 compared
to $8,417,852 in the three months ended March 31, 2001. The $5,881,874 decrease,
69.9%, from the prior period, was due to a reduction in sales staff, a focus on
fewer product lines and the inability to source product to meet the orders
placed.
Cost of sales for the three months ended March 31, 2002 was $2,167,353 as
compared to $7,251,474, a decrease of $5,084,121 related to the decrease in
revenues. The cost of sales percentage decreased to 85.5% of sales, down from
86.1% of sales for the same period in 2001, which resulted in a corresponding
gross profit margin increase to 14.5% from 13.9% for the respective periods. The
increase reflects a shift to higher profit margin products. The gross profit for
the fiscal quarter ended March 31, 2002 was $368,625, a decrease of $797,753
from the fiscal quarter ended March 31, 2001.
Selling, general and administrative expense was $818,146, or 32% of revenue, for
the three months ended March 31, 2002 as compared to $3,979,104, or 47% of
revenue, for the same period in 2001. The decrease of $3,160,958, or 79.4%, was
due to decreases in personnel related costs, travel, marketing and
advertisement, professional fees and administrative fees related to a
subsidiary, partnerAxis.
Interest expense for the three months ended March 31, 2002 was $150,417 as
compared to $1,152,159 for the three months ended March 31, 2001. The decrease
of $1,001,742 was principally due to the costs recorded in the prior year for
expenses recorded for the warrants issued to the Debenture holder for the
release of restricted cash in July 2000, a beneficial conversion feature of
$130,000 recorded on the Secured Convertible Promissory Note issued to Canopy,
and the higher interest and amortization expenses related to the Debenture. The
decrease can also be attributed to the interest charges allowable under the
bankruptcy laws. The Company can only pay interest on debts that are fully
secured. The interest and other income of $440 for the three months ended March
31, 2002 as compared to $34,248 for the same period in 2001, was primarily
related to the reduction in restricted cash used to pay down the Debenture.
The preceding factors resulted in a net loss attributable to common stockholders
of $409,863 or $0.01 per basic and diluted share for the three months ended
March 31, 2002 as compared to a net loss attributable to common stockholders of
$9,991,990, or $0.30 per basic and diluted share, for the three months ended
March 31, 2001.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
Net revenues for the nine months ended March 31, 2002 were $6,200,710 compared
to $14,007,310 in the nine months ended March 31, 2001. The $7,806,600 decrease,
55.7%, from the prior period, was due to a reduction is sales staff, a focus on
fewer product lines and the inability to source product to meet the orders
placed by our customers.
Cost of sales for the nine months ended March 31, 2002 was $5,275,317 as
compared to $11,835,018, a decrease of $6,559,701 related to the decrease in
revenues. The cost of sales percentage increased to 85.1% of sales, up from
84.5% of sales for the same period in 2000, which resulted in a corresponding
gross profit margin decrease to 14.9% from 15.5% for the respective periods. The
decrease reflects some of the special pricing we afforded customers during the
period in an attempt to maintain relationships. The gross profit for the nine
months ended March 31, 2002 was $925,393, a decrease of $1,246,899 from the nine
months ended March 31, 2001.
Selling, general and administrative expense was $3,023,779, or 49% of revenue,
for the nine months ended March 31, 2002 as compared to $7,493,848, or 53% of
revenue, for the same period in 2001. The decrease of $4,470,069, or 59.6%, was
due to decreases in personnel related costs, travel, marketing and
advertisement, professional fees and administrative fees related to a former
subsidiary, partnerAxis.
Interest expense for the nine months ended March 31, 2002 was $547,905 as
compared to $4,355,987 for the nine months ended March 31, 2001. The decrease of
$3,808,082 was principally due to the costs recorded in the prior year for
expenses recorded for the warrants issued to the Debenture holder for the
release of restricted cash in July 2000, a beneficial conversion feature of
$130,000 recorded on the Secured Convertible Promissory Note issued to Canopy,
and the higher interest and amortization expenses related to the Debenture. The
interest, and other income of $4,371 for the nine months ended March 31, 2002 as
compared to $172,522 for the same period in 2001, was primarily related to the
reduction in restricted cash used to pay down the Debenture.
The preceding factors resulted in a net loss attributable to common stockholders
of $2,854,374 or $0.08 per basic and diluted share for the nine months ended
March 31, 2002 as compared to a net loss attributable to common stockholders of
$17,490,019, or $0.83 per basic and diluted share, for the nine months ended
March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our net cash provided in operating activities for the nine months ended March
31, 2002 was $760,228 as compared to $7,249,804 used in the nine months ended
March 31, 2001. The operating cash shortage was financed through financing
activities discussed below. The primary source of cash resulted from the
reduction in accounts receivable and inventory. The reduction in receivables was
primarily used to reduce the RLOC.
The net cash used by investing activities during the nine months ending March
31, 2002 was $17,753 as compared to $587,774 for the nine months ended March 31,
2001. The primary use of cash in the nine months Ended March 31, 2001 was for
the purchase of assets of a Subsidiary.
The net cash used from financing activities during the nine months ended March
31, 2002 was $1,246,432. Most of the reduction was used to reduce the RLOC,
which was terminated on June 30, 2001. From June 30, 2001 until the date that
Canopy assumed the RLOC, all collections of accounts receivable were applied to
reducing the RLOC.
Even with the transactions set forth above, we have need for additional capital
and are continuing our efforts to locate and raise additional capital.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB contains
express or implied forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. We intend that such forward-looking statements be subject to the safe
harbors created thereby. We may make written or oral forward-looking statements
from time to time in filings with the SEC, in press releases, quarterly
conference calls or otherwise. The words BELIEVES, EXPECTS, ANTICIPATES,
INTENDS, FORECASTS, PROJECT, PLANS, ESTIMATES and similar expressions identify
forward-looking statements. Such statements reflect our current views with
respect to future events and financial performance or operations and speak only
as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Form 10-KSB for
the fiscal year ended June 30, 2001, including those in the Notes to
Consolidated Financial Statements and in MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION and DESCRIPTION OF BUSINESS -
Factors Affecting Future Performance sections which are incorporated by
reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation that the
future events, plans or expectations contemplated will be achieved. We undertake
no obligation to publicly update, review or revise any forward-looking
statements to reflect any change in our expectations or any change in events,
conditions or circumstances on which any such statements are based. Our filings
with the SEC, including the Form 10-KSB referenced above, may be accessed at the
SEC's Web site, www.sec.gov.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings and have certain outstanding claims
as described in our Form 10-KSB for the year ended June 30, 2001. Certain
outstanding vendor claims have been settled. Management believes that all such
matters are within ordinary levels for an organization of our size and nature.
Management believes that these disputes will be resolved without material
adverse consequences to operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the issuance of $591,000 of secured debt instruments in
January and February, 2002, we executed promissory notes payable to each holder
of the secured debt instruments and granted to the holders, collectively, a
security interest in our assets on an equal basis, dollar for dollar, with the
security interest of Canopy. Canopy executed an intercreditor agreement with
FFEC, our financial advisor and agent for each holder of the secured debt
instruments, to reflect the priorities of their respective security interests.
The holders of the secured debt instruments are in the process of subordinating
their security interest in our post-petition accounts receivable to the security
interest of Canopy under the ABL.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
4.1 Form of Security Agreement and Appointment of Agent for Holders,
approved November 14, 2001 and dated January 25, 2002.
4.2 Form of Promissory Note approved November 14, 2001 and each dated with
various dates in January and February, 2002.
4.3 Form of First Amendment to Security Agreement and Appointment of Agent
for Holders.
(B) REPORTS ON FORM 8-K
During the quarter ending March 31, 2002, no reports on Form 8-K were
filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
EBIZ ENTERPRISES, INC.
DATED MAY 16, 2002 BY /s/ BRUCE PARSONS
--------------------------------------
BRUCE PARSONS
CHIEF EXECUTIVE OFFICER